What are Good Sources to
Use for A Down Payment?
The obvious source of money for your down payment when you are buying a home is either your savings account. Another good source is the proceeds from the sale of a home that you already own. There are some other not so obvious sources of funds that may be available to you. In recent years, for example “parent power” has taken some new twists for first-time buyers.
Home Equity Loan — Parents often have considerable equity built up in their own homes. Many of them are tapping that asset through home equity loans to make a gift to their children to make a down payment or to help with closing costs. If this is an option for you, it is important that you ask your tax advisor for up-to-date information on the tax implications for you or your parents. Lenders often will require a “gift letter” to verify that your parents don’t expect repayment.
Shared Equity/Profit-Sharing — In return for providing a part of the down payment, a home buyer’s parents (or another investor) will share in the “profit” or net equity of the house when the homeowners eventually sell it.
Life Insurance — If you have built up a cash value on your life insurance policy over the years, you may be able to borrow from your insurance company up to the amount of this accumulated cash value. Often, the insurance company will even charge a more favorable interest rate than rates charge for other types of loans.
Stocks and Bonds — If you feel that the current state of the market doesn’t favor selling your stocks or bonds now, you may be able to secure a bank loan using your portfolio as security.
Company Profit Sharing or Savings Plan — Look into the possibility of withdrawing what you have in your profit sharing or savings plan account or borrowing against it, if your company has these programs.